Facilitation, circumvention
and personal offences under
EU sanctions, and a review of
penalties for breach of sanctions
Again, from our discussions with the UK regulators, they take a wide
view of these prohibitions. Given the wide scope of these offences,
a UK-based company that has any direct (or indirect) involvement
in a transaction that breaches sanctions is exposed if it has the
requisite knowledge.
In addition, a company or individual that within the UK assists another
person to commit a criminal offence may be guilty of an English
common law offence, and anyone who encourages or assists crime
may be guilty of an offence under the Serious Crime Act 2007.
Anthony Woolich, Partner,
Holman Fenwick Willan LLP
+44 20 7264 8033
[email protected]
Daniel Martin, Associate,
Holman Fenwick Willan LLP
+44 20 7264 8189
[email protected]
We understand that US sanctions law contains a similarly wide
offence of ‘facilitation’.
Introduction
EU-based companies that have any involvement in a transaction that
infringes EU sanctions need to be aware that, even in circumstances
where they have not committed a ‘primary’ offence, they are still
at risk of committing a ‘secondary’ offence if they have facilitated
or enabled an infringement of a prohibition under EU sanctions
by another party, or they are involved in activities to circumvent
the prohibitions.
Given that exposure may arise even where the entity that has
committed the ‘primary’ offence is not itself liable, for example
because it is not an EU person and all relevant activities take place
outside the EU, it demonstrates how important it is that all EU
companies understand the risks to which they are exposed by the
activities of their trading partners.
In this article, we look at the circumstances in which EU-based
companies are exposed to these risks, the limited defences that are
available and the potentially severe consequences for those companies
that get it wrong.
We focus on the EU sanctions against Iran and Syria, but the points
are generally applicable in the case of other sanctions regimes.
What are the risks?
Circumvention
An EU-based company that participates knowingly and intentionally in
activities the object or effect of which is to circumvent the prohibitions
will in most instances have breached EU sanctions (as well as UK
implementing legislation, which tends to include similar language).
From our discussions with the regulators in the UK, it is clear that they
will adopt a broad view of what constitutes “circumvention” such that
companies that have any concerns should be vigilant to ensure that
they are not involved in any such activities.
As a result, EU-based companies that have any suspicion that their
counterparties are devising structures, or concealing information, in
order to get around the various sanctions in place should take
immediate advice from the club or lawyers.
Facilitation/enabling/assisting offences
A UK-based company or individual that “intentionally participates in
activities knowing that the object or effect of them is (whether directly
or indirectly) to enable or facilitate the contravention of a prohibition
or requirement” will in most instances have breached the UK legislation
that implements the EU sanctions (and thereby committed a
criminal offence).
Who is potentially exposed?
Parent company liability
Parent companies whose subsidiaries or associated companies (even
outside the EU) infringe the sanctions could be caught by these
anti-circumvention and facilitation offences, depending of course on
the facts. Indeed, mere control may be sufficient to establish liability,
and this is especially likely where the parent company approves or has
directed the subsidiary’s conduct.
Officers of a company
National implementing legislation may also provide for personal
liability of officers of companies that infringe the EU sanctions.
For example, where an offence is committed with the consent or
connivance of any director, manager, secretary or other similar officer
of the company (or is attributable to any neglect on the part of any such
person), that person, as well as the company, is guilty of an offence.
What defences are available?
EU sanctions (and national implementing legislation) may provide for a
‘no knowledge’ defence. This is generally available where the relevant
individual did not know, and had no reasonable cause to suspect, that
their actions would infringe the prohibition in question.
This ‘no knowledge’ defence does not mean that a blind eye can be
turned. But it does mean that if appropriate due diligence has been
undertaken, and no suspicion reasonably aroused, then no offence is
committed even if it turns out that there has been an infringement.
What constitutes appropriate due diligence will of course depend on
the particular facts of the case.
What penalties may be imposed?
The EU sanctions provide for implementation of ‘effective, proportionate
and dissuasive’ penalties by Member States. In the case of the UK, the
penalties for infringements include potentially unlimited fines, as well
as up to two years’ imprisonment.
What penalties have been imposed to date?
In 2009, Mabey & Johnson Ltd was found guilty by the English courts
of breaching UN sanctions on Iraq in and around 2001 to 2002.
The offence involved the manipulation of the UN’s ‘Oil for Food’
programme, creating inflated invoices, which included a ‘kickback’
to the Iraqi Government at a time when making funds available
to the Iraqi Government was prohibited.
For the sanctions offence, Mabey & Johnson was fined £2m and
was required to pay a £1.1m confiscation order, reparation payments
of over £600,000 and the prosecution costs. In addition, Mabey &
Johnson was found guilty of a bribery offence, which is outside the
scope of this article.
Standard Bulletin: Sanctions Special Edition, August 2012
13
EU Regulation 267/2012
in regard to crude
Crudeoil,
Oil,
Petroleum Products
petroleum
products and
Petrochemical
petrochemicals
In a separate prosecution, three former employees of Mabey &
Johnson were found personally liable for their role in making the
illegal payments in breach of UN sanctions. A former managing
director was sentenced to 21 months imprisonment, disqualified from
acting as a company director for five years and was ordered to pay the
prosecution costs of £75,000. A former sales director was sentenced
to eight months imprisonment, disqualified from acting as a company
director for two years and was ordered to pay prosecution costs of
£125,000. Another former sales manager was also imprisoned for
eight months but this was suspended for two years. The penalties
imposed on these individuals are, however, small in comparison to
those imposed in the US.
In 2010, the Weir Group PLC was found guilty by a Scottish court of
offering similar ‘kick-backs’ to the Iraqi Government in breach of UN
sanctions against Iraq. The Court had some regard to the penalties
imposed in the Mabey & Johnson case and levied a fine of £3m
against Weir. When sentencing, the Court highlighted the need to
deter future offences that would damage the interests of the UN by
breaching resolutions agreed by the UK. The Court, however, after
arriving at its initial fine of £4.5m, allowed a significant discount to
Weir for entering into an early plea of guilty.
In 2010, the UK Financial Services Authority (FSA) fined the Royal Bank
of Scotland Group £5.6m under the Money Laundering Regulations
2007. Although not accused of committing a direct breach of
sanctions imposed against a state, members of the Group had failed
to have in place adequate screening against the sanctions list of
customers, and particular payments, resulting in an unacceptable risk
that the Group could have facilitated transactions involving sanctions
targets. The original fine was £8m, but this was later reduced when
the Group agreed to settle early in the FSA’s investigation. The level of
fine set shows that, under the matrix of UK legislation, high penalties
can be imposed for entities that merely expose themselves to the
possibility of facilitating the financing of sanction targets.
Conclusion
All of those involved in the international movement of goods could
potentially be involved in enabling or facilitating prohibited
transactions (or in circumvention practices), where their counterparties
engage in prohibited transactions. Organisations with a possible
exposure include shipowners, charterers, ship suppliers, shipbrokers,
insurers, insurance brokers, operators, technical managers, providers
of bunkering or ship supply services (or any other services to ships),
parent companies, banks and other providers of financial assistance.
Organisations should therefore ensure that appropriate due diligence
is carried out and, if necessary, legal advice is taken, to reduce the risk
of falling foul of the sanctions regimes. In considering the potential for
sanctions legislation to be triggered, organisations must carefully
consider the parties, the cargo and the ports involved as well as the
extent to which existing contracts include sufficient protection
(including appropriate warranties, indemnities and liberties).
David R Jones BSc, CChem, MRSC, CSci, FEI.
Director, Oil & Chemical Department, CWA International
+44 20 7242 8444
[email protected]
The restrictive measures against Iran outlined in EU Regulation
267/2012 include, amongst others, the prohibition on the import into
the EU of all crude oil and petroleum products under Article 11 and
Annex IV, as well as the prohibition on the purchase or transport of
such products, if they originate or are being exported from Iran.
The range of products obtained from the refining and secondary/tertiary
processing of crude oil is included in Annex IV to the Regulation and
specific mention is given to waxes, petcoke and bitumen products.
Products not specifically mentioned, but which undoubtedly fall into
the general description of ‘petroleum oils’, include well-known clean
petroleum products (CPPs) such as naphtha, gasoline/mogas, kerosene/
jet fuel, diesel/gasoil and base lube oils.
The cargo prohibition in Annex IV does not generically refer to LNG
and LPG (liquefied petroleum gas) cargoes. Annex V to the
Regulation, of which further reference is made below, does however
refer to ethylene, propylene and butadiene, elements of which may be
found in LPG cargoes. So if such cargoes are being contemplated for
loading, it would be prudent to request product analysis details and to
ascertain whether the cargo does contain any of the prohibited
products identified in Annex V. Having said that, the UK Competent
Authority for Customs Classification has advised that cargoes with a
six-digit customs tariff bearing the number 271111 (LNG) or 271112
(LPG) are not caught by the Regulation.
Other CPP products derived from refinery processes and sometimes
shipped aboard tankers include condensates, raffinates, reformates,
alkylates, pygas, vacuum gasoil (VGO), cycle oil and others.
Insofar as dirty petroleum products (DPPs) are concerned, product
descriptions include well-known terms such as intermediate fuel oil
(IFO), heavy fuel oil (HFO) and high/low sulphur versions of same
(HSFO and LSFO). Other descriptions for DPPs can include: low sulphur
waxy residual (LSWR), rubber process oil (RPO), carbon black
feedstock (CBFS), hydrocracker bottoms (HCB) and others.
It is recommended that expert advice be sought if any doubt exists
regarding product description and whether the description falls within
Annex IV.
Article 13 and Annex V also provide for the complete prohibition of
the import into the EU of petrochemical products, as well as the
prohibition on the purchase or transport of such products, if they
originate or are being exported from Iran.
14
Standard Bulletin: Sanctions Special Edition, August 2012